Slash subsidy, raise prices of diesel and LPG: Economic Survey

Feb 27, 2013, 03.19PM ISTPTI

The Economic Survey has made a strong pitch for slashing subsidy and raising the prices of diesel and LPG.

NEW DELHI: Claiming that the "downturn is more or less over", the pre-Budget Economic Survey on Wednesday projected an optimistic 6.1 to 6.7 per cent growth in the next fiscal and made a strong call for cutting subsidises.

While pegging the GDP growth at an estimated 5 per cent for the current fiscal, the Survey tabled in Parliament by finance minister P Chidambaram said "...the overall economy is expected to grow in the range of 6.1 to 6.7 per cent in 2013-14" as the economy is looking up.

"Controlling the expenditure on subsidies will be crucial. The domestic prices of petroleum products, particularly diesel and LPG need to be raised in line with their prices prevailing in the international market," the Survey said.

It noted that a beginning has already been made with the decision in September last to raise the price of diesel and again in January to allow oil marketing companies to increase prices in small increments at regular intervals. The number of subsidised gas cylinders has also been capped at 9 per household.

Predicting that the headline inflation will decline to between 6.2 and 6.6 per cent by next month, the Survey said that elevated food inflation would continue to remain an area of concern as it inched towards double digit in December 2012.

The Survey emphasised that efforts will have to be made to contain subsidies through better targeting and for reducing leakages involved in their delivery. One such initiative is direct benefit transfer (DBT) scheme.

It said the government has been calibrating pricing policies to addressing the issue of burgeoning fertiliser subsidy and underlined the need for according priority to food subsidy in view of the under consumption of basic food by the poor and the extant of malnutrition.

The Survey said high level of global crude oil prices also has a bearing on fertiliser subsidy as as there is inadequate pass-through in urea prices (a major domestic fertiliser).

The government has been calibrating pricing policies to address the issue of burgeoning fertiliser subsidies, like fixing the per tonne subsidy on key non-nitrogenous phosphatic and potassic (P&K) fertilisers.

The survey said food subsidy has been growing at an average annual rate of 25.4 per cent in the last five years, of which the bulk is accounted by the targeted public distribution system (TPDS).

"In terms of the merits of subsidisation, priority needs to be accorded to food subsidy in view of the under consumption of basic food by the poor and the extent of malnutrition in the country," it added.

It stressed the need for better targeting of subsidies and for reducing leakages involved in their delivery and the direct cash transfer is one such initiative.